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- Child life insurance isn’t worth it for parents looking to use it as a savings – there are better options for putting money aside.
- It is a life insurance product that usually has a cash value but is not as expensive as for adults.
- Grandparents typically buy children’s life insurance as an inheritance for grandchildren to use for school, a wedding, home, or car.
- Check out Business Insider’s picks for the best life insurance companies.
As a parent, the safety of your children is paramount.
Securing their financial stability as they grow and taking care of them if something happens often begs the question of whether you should buy child life insurance.
Let’s make it clear: parents should not take out child life insurance as a means of saving for their children. Use a . instead trust or UTMA leaving the proceeds of your own life insurance and investments for your children.
However, that doesn’t mean that child life insurance isn’t worth it to anyone. The term “life insurance for children” or “life insurance for children” is misleading because it is assumed that the parent is buying. The usual buyer of life insurance for children is actually grandparents – something we’ll get into later.
Child life insurance can be purchased for a child as young as two weeks old.
It is usually whole life insurance, which means that part of the premium you pay each month is invested. You pay that premium for the rest of your life, and over time you can withdraw some of that money (called “present value”) from the policy before you die. It will pay out full value if you die at any point.
Since minors cannot own life insurance policies nor receive payouts, the adult is the policyholder and manages the account. Once the child turns 18, they can become the policyholder and withdraw or borrow money at the cash value of the policy.
Whole life is generally used for two things: to create this cash value, a policyholder can withdraw or borrow money during his lifetime, and to ensure that his heirs receive a payout when the policyholder dies, regardless of their age. The second goal is not really relevant for child life insurance; it is the cash value that is under discussion.
The other type of life insurance is: term life insurance, which is generally recommended for any adult with a dependent.
covers a period of 10, 20 or 30 years; if you die during that time, your beneficiaries will get your payout. If you die after that period, they don’t – by then the assumption is that they are no longer dependent on you. In most cases you are not talking about term life insurance when you are talking about child life insurance.
For most parents: No, child life insurance is not worth it.
The question adults ask when considering buying life insurance is: If I die, will people depend on my income – spouse, children, parent? If the answer is yes, then you usually buy life insurance 10 times your annual income. For example, if you make $75,000 a year, you would buy a life insurance policy for $750,000.
However, life insurance for children is a life insurance product sold especially for a child. So now the question is, do other people depend on them for their bread? Unless your child is a child actor who helps support the family, the answer for most parents is no – which is why, in general, parents should not buy child life insurance.
Knowing that most children do not have dependents, child life insurance is marketed with the following benefits: It protects the insurability of the child and it can be a means of savings. Protecting Insurability Is A Concern For Families With Genetic Health Problems Fearing The Children Inherit The Condition As They Get Older Barbara Pietrangelo told Business Insider.
It is also marketed as a parental savings tool, but there are better options for putting money aside for the future.
If saving for your child’s future is the goal, it’s more important that both parents have adequate life insurance policies that bear their child’s name. trust or UTMA as the beneficiary of life insurance, stocks and bonds on behalf of the child.
Under the UTMA, a parent creates an account for a child with a life insurance company or financial institution. The parent chooses a custodian who controls and manages the assets (life insurance, stocks, real estate) for the child until they reach adulthood, usually at age 18.
While setting up a trust is more expensive, it gives you more control over how the assets (life insurance proceeds, stocks, cash) are spent and when your child will access the funds. Most people who build up a trust for their children don’t take full control of their children until the child is at least 25 years old – rather than 18 years old like with a UTMA.
Because life insurance for children is a full life insurance policy and has a cash value that can be borrowed from, full life insurance for adults can cost six to ten times more per month than an adult term life insurance policy. However, this does not apply to child life insurance.
Pietrangelo told Business Insider that life insurance rates for children are not as expensive as people think. A $100,000 policy for a 4-year-old girl, she found, would currently be $25 a month — $5 a week, basically.
Business Insider looked at a few quotes for a $50,000 child life insurance policy for a 3-year-old girl in Virginia, and saw no policies worth more than $75,000. Here are a few sample quotes we were able to pull off:
According to the quotes we found, the cost of child life insurance breaks down to less than $10 a week.
Why Grandparents Buy Child Life Insurance?
It’s not usually the parents who buy life insurance for children, Pietrangelo said. Grandparents use it to give their grandchildren a financial inheritance that can be used for school, a wedding, a house or the first car purchase.
When you consider how much grandparents spend on their grandchildren — $160 in sneakers or $200 in toys and video games — a $25/month child life insurance policy is worth it, Pietrangelo said. CNBC reports that grandparents spend about $805 a year on gifts for their grandchildren.
That $25 a month child life insurance policy works more like a forced savings feature that guarantees you’re putting money aside for the child, removing the temptation of a savings account that you can dive into anytime. Its low cost can also work for fixed income grandparents.
But remember: if you’re considering it, buy only the amount you can afford. It’s definitely not worth it if you can’t comfortably make the payments.
As a devoted aunt, I spend generously on toys and gifts for birthdays and holidays. Pietrangelo’s analogy made me think about how much better my money could have been invested in toys. I’d rather leave a legacy for them to enjoy a gap year from college traveling the world.
Although grandparents, aunts and uncles can purchase child life insurance for grandchildren, nieces and nephews, they require parental consent. They will need the child’s social security number and the doctor’s information — to make sure the child is reasonably healthy — when completing the insurance application.
You can purchase child life insurance online from a life insurance company or through an intermediary.
During our search for sample quotes, the online tool limited the amount of the child’s life insurance policy to $50,000. However, an intermediary may be able to provide you with a higher policy amount; Pietrangelo was able to find quotes for $100,000. It is best to compare for the best rates and ask your current life insurance company if they have life insurance plans for children and any discounts for existing customers.